eMPLOYMENT sCREENS & bACKGROUND cHECKS AND THE

Presented by:
Jane McFetridge, Managing Shareholder Chicago Office, Jackson Lewis
Jim McKenna, Shareholder, Jackson Lewis
Zack Raimi, Employment Counsel, Allstate
Thursday, January 8, 2015
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Represents management exclusively in every aspect of
employment, benefits, labor, and immigration law and
related litigation
Over 780 attorneys in 54 locations nationwide
Current caseload of over 6,500 litigations and
approximately 550 class actions
Founding member of L&E Global
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According to a recent SHRM study, 92% of
organizations obtain criminal background checks
on job candidates.
But:
o Approximately 78% have a written policy for
employees to follow regarding background checks.
o Approximately half have a policy to coordinate
background checks with their legal department or
legal counsel.
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Generally, to protect the workplace and the
employer’s business.
To defend against claims of “negligent hiring.”
o Liability may exist where “the employer knew or
reasonably should have known” that the employment
of an individual would create a foreseeable danger to
others.”
May be required by law for certain positions.
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Unfairness of denying employment for arguably
“minor” offenses
Discriminatory impact on protected groups
Frequent inaccuracies in information found in
public databases
Potentially serious liability for class actions
brought by the plaintiffs’ bar or the EEOC
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Recent developments in the law of background
checks
o Illinois’ new “Ban the Box” law (effective 1/1/15)
o Illinois’ prohibition on use of arrest records
o Illinois Credit Privacy Act
Complying with the Fair Credit Reporting Act
Title VII -- Adverse impact concerns
Implementing and maintaining compliant
background check policies and practices
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The Job Opportunities for Qualified Applicants
Act (820 ILCS 75), effective January 1, 2015.
The “Box” refers to the commonly used question
on a job application: “Have you ever been
convicted of a crime/felony?”
Illinois employers are now prohibited from
inquiring into a prospective employee’s criminal
background on the application form or during the
early stages of the hiring process.
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With limited exceptions, employers and their
agents cannot consider or inquire into an
applicant’s criminal record or history until:
o The individual has been determined qualified for the
position and notified of an impending interview; or
o A conditional offer of employment has been made (if
the Applicant will not be interviewed).
Violations – Investigated by the Illinois DOL;
progressive civil penalties.
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The Act applies to any “Employer” considering
an “Applicant.”
“Employer” defined as “any person or private
entity that has 15 or more employees in the
current or preceding calendar year, and any
agent of such an entity or person.”
“Applicant” defined as “any person pursuing
employment with an Employer or with or through
an employment agency.”
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When employer is required to exclude applicants
with certain criminal convictions under federal or
state law. For example:
o Employees, owners and controlling parties of FDIC
insured institutions (Section 19, Federal Deposit
Insurance Act)
o Child care workers (225 ILCS 10)
o School workers (e.g., 105 ILCS 5/10-21.9)
o Health care workers (225 ILCS 46)
o Private detectives, private security contractors and
locksmiths (225 ILCS 447)
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When a standard fidelity bond would be required
and particular convictions would disqualify the
applicant from obtaining the bond.
For paramedics licensed under the Emergency
Medical Services Systems Act.
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The Illinois Department of Labor (IDOL) is vested with
investigatory powers and may impose civil penalties in
dour stages:
o #1 – Written warning and 30 days to remedy
o #2 – Penalty of up to $500 for second offense OR if first
offense is not corrected within 30 days of notice
o #3 – Penalty of up to $1,500 on third offense OR if first
offense is not corrected within 60 days of notice
o #4 – Additional penalties of up to $1,500 for every
subsequent violation OR if first offense is not corrected
within 90 days of notice, additional penalties of up to
$1,500 for every 30 days that passes without correction
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Will affect the application processes of many
employers.
Review job application forms to eliminate
criminal background questions.
Criminal background checks/inquiries are
delayed until later in the hiring process.
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The Act does not prohibit an employer from
notifying applicants in writing – for example, on
the application form – that certain criminal
convictions may disqualify them from
employment, whether due to:
o Federal or state law, or
o The employer’s policy
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Act is not intended to override any existing
substantive state or federal law
Employer policies as to what criminal convictions
are disqualifying are not affected.
The ultimate hiring decision is not affected, only
the hiring process.
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Illinois Human Rights Act (775 ILCS 5/2-103)
Employer may not “inquire into or use the fact of
an arrest” in taking any employment action.
But employer is permitted to obtain or use “other
information which indicates that a person
actually engaged in the conduct for which he or
she was arrested.”
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Additional protection for juvenile records
Employer must inform applicant that there is no
obligation to disclose expunged juvenile records
of arrests or conviction.
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Under the Illinois Employee Credit Privacy Act
(820 ILCS 70), an employer may not:
o Discriminate against an applicant or employee based
on the individual’s credit history or credit report
o Inquire about credit history
o Order or obtain a credit report
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Prohibition does not apply to banks, insurance or
surety companies, debt collectors and state law
enforcement or investigative units.
Credit checks are also permissible if there is a bona
fide occupational requirement (as defined in
statute):
o
o
o
o
Custody or access to $2,500 in cash or assets
Signatory power of $100 per transaction
Access to personal or confidential information
Managerial position setting the direction or control over the
business
o Position requiring bonding or security
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Governs the collection, assembly, and use of
information about consumers, including:
o Credit information
o Criminal background
o Motor vehicle reports (MVR)
o Other public record information
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Purposes of the FCRA
o Prevent misuse of sensitive consumer information by
limiting the recipients to those with legitimate need for
it
o Improve the accuracy and integrity of consumer
reports
o Promote efficiency of the nation’s banking and
consumer credit systems
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Enacted in 1970
Amended in 1996 to include employers and the
employment process
Amended in 2003 in the Fair and Accurate
Credit Transactions Act (FACTA) to combat
identity theft
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One of the permissible purposes under the
FCRA
Job applicants
Current employees
Independent contractors
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Reports containing information culled from databases
or public records by a consumer reporting agency
Defined as: “Written, oral, or other communication of
any information by a consumer reporting agency
bearing on a consumer’s credit worthiness…character,
personal characteristics…used or collected in whole or
in part for the purpose of serving as a factor in
establishing the consumer’s eligibility
for…employment purposes.”
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A document can be a consumer report only if it is
prepared by a “consumer reporting agency.”
Defined as “any person which, for monetary
fees, dues, or on a cooperative nonprofit basis,
regularly engages in whole or in part in the
practice of assembling or evaluating consumer
credit information or other information on
consumers for the purpose of furnishing
consumer reports to third parties...”
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An employer is generally not a CRA.
Information directly from the consumer is
generally not a consumer report.
o Information provided by job applicant
o Employer calling directly to verify previous
employment or education
o Drug testing, where employer performs the drug test
or gets results directly from the lab without
involvement of a CRA
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1. Pre-procurement requirements:
a. Certification
b. Disclosure/Notice
c. Authorization/Consent
2. Pre-adverse action requirements:
a. Provide report and CFPB’s summary of rights
b. Wait
3. Post-adverse action requirements:
a. Notice of adverse action
b. Information on CRA and consumer rights
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The simplest requirement
Employer must certify to consumer reporting
agency that information will be used for
employment purposes and that employer will
follow the FCRA’s requirements.
Otherwise, the CRA may not legally provide
information to the employer.
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An employer may not obtain a consumer report
unless: “a clear and conspicuous disclosure has
been made in writing to the consumer at any time
before the report is procured or caused to be
procured, in a document that consists solely of
the disclosure, that a consumer report may be
obtained for employment purposes.”
Requires a stand-alone document.
o E.g., disclosure cannot be contained in job application
Important not to clutter the disclosure with unrelated
material
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Should not include release language in the
disclosure document:
o “I hereby fully release and discharge you and [CRA],
their respective affiliates, subsidiaries, directors,
officers, employees, agents an attorneys thereof, and
each of them, and any individual, organization, entity,
agency, or other source providing information to
[CRA] from all claims and damages arising out of or
relating to any investigation of my background for
employment purposes.”
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An employer may not obtain a consumer report
unless: “the consumer has authorized in writing…
the procurement of the report by that person.”
The FCRA’s disclosure and authorization requirements
facilitate informed consumer choice about whether to
permit a background check to be run.
Most common practice to have the disclosure and
authorization on the same stand-alone document.
o The authorization, but not the disclosure, may be
contained in the job employment application or other
document.
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The most frequent issue of FCRA compliance
“Adverse action” = “denial of employment or any
other decision for employment purposes that
adversely affects any current or prospective
employee”
In practice, this is a very broad definition.
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FCRA applies when a consumer report is used
“in whole or in part” to take an adverse
employment action.
Best practice to follow FCRA requirements any
time a consumer report is obtained, even if there
is an independent basis for the employment
decision.
E.g., Dishonesty on the employment application
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Before taking an adverse action an employer
must:
1. Provide the applicant or employee
 Copy of the report
 Copy of CFPB’s summary of rights under the FCRA
2. Wait before taking adverse action
 The FCRA is silent on how long
 Case law requires a reasonable amount of time to allow
person to dispute inaccuracies with the CRA (not
necessarily the employer)
 FTC has found 5 business days to be reasonable
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After taking an adverse action an employer must
provide additional information regarding the CRA
and consumer rights:
o Name, address, and toll-free telephone number of the CRA
o A statement that the consumer reporting agency did not
make the decision and is unable to provide the consumer
the specific reasons why the adverse action was taken
o Consumer’s right to obtain from the CRA a free copy of the
consumer report
o Consumer’s right to dispute with the CRA the accuracy or
completeness of the information in the report
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Increasing number of filed cases
Statute of Limitations
o 2 years from time of discovery; 5-year outside limit
Damages/Relief
o Actual damages
o Statutory damages if willful violation
o Possibility of punitive damages
o Attorneys’ fees and costs
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Key issue: Willful vs. non-willful violation
Willful = reckless
Safeco Insurance v. Barr (Supreme Court 2007)
o Interpretation of FCRA “not objectively unreasonable”
o No contrary “guidance” from courts of appeal or FTC
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FCRA cases are often well suited for class
treatment – typically there is a common practice
or policy
o Murray case (7th Cir.)
High potential for class exposure
o Size of exposure can be enormous
Willfulness issue is especially important
o Willful violations may be necessary to obtain class
certification
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Dukes v. Wal-Mart analysis
o Would apply where there was an FCRA-compliant
corporate policy and decentralized responsibility.
Unascertainability of class members
o Difficulty of ascertaining class members is not enough
to defeat certification.
o Standard: Class certification can be appropriate even
it determination of class membership requires the
review of numerous records, if the review is
"ministerial" and does not require an inquiry into the
merits of the individual claims.
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Predominance of individual issues
o Farmer decision -- Liability depended on a finding that
the specific information on the report was not
accurate.
Arbitration agreement with class action waiver
o Especially important that agreement be executed by
job applicants. Rejected applicants are frequent
FCRA plaintiffs.
o Successful in the Northern District of Illinois
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Are background checks discriminatory?
Two basic types of discrimination claims
o “Disparate Treatment” – intentional discrimination
o “Disparate Impact” – facially neutral
practice/requirement has discriminatory effect
EEOC’s position on criminal background checks
o Usually have a discriminatory impact
o Must be job related and consistent with business
necessity
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EEOC estimates of the number of men by racial
sub-group who will serve time in prison during
their lifetime:
o 1/106 Whites
o 1/36 Hispanics
o 1/15 African-Americans
EEOC: African-Americans = 13% of the
population, but 28% of arrests, and 40% of the
incarcerated population
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2012 EEOC Strategic Enforcement Plan
o Highest Priority: Systemic hiring discrimination, including
“facially neutral hiring practices” such as background
checks
o Focus on “company-wide” relief
2012 EEOC Guidance on background checks
o Targeted screen
o Individualized assessment
Conclusion: Employer background checks will be
increasingly subject to challenge, especially a “onesize-fits-all” criminal background policy.
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Concept: Show that policy is job-related and
consistent with business necessity by reference
to the so-called Green factors (8th Cir. 1975).
o The nature and gravity of the offense or conduct
o The time that has passed since the offense or
conduct and/or completion of the sentence
o The nature of the job held or sought
In practice, whether a particular criminal
conviction will disqualify an applicant depends
on the crime and the job sought.
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EEOC Guidance lists nine possible factors to consider
as part of an individual assessment, including:
o
o
o
o
o
o
o
o
Circumstances surrounding the offense or conduct
Number of offenses
Age at the time of the conviction or release from prison
Did the applicant perform the same type of work post-conviction
without incidents of criminal conduct?
The length and consistency of employment history before and
after the offense or conduct
Rehabilitation efforts, e.g., education/training
Employment or character references, and other information
regarding fitness for the particular position
Whether the individual is bonded
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For the individualized assessment, the EEOC
Guidance prefers notice to the individual under
scrutiny and dialogue as to the factors.
o Mitigating factors are listed but not limited
o Applicants given the opportunity to present evidence
demonstrating their fitness, if they so choose.
Key point: If the individual does not respond to the
employer’s inquiry, the employer may make its
decision without the information.
In practice, the individualized assessment dialogue
can be initiated as part of the FCRA pre-adverse
action notice.
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Applicant fills out initial application for employment. The initial
application does not ask if the applicant has been convicted of a
crime.
o Formerly, the initial application asked whether applicant had ever been
convicted of a crime that had not been expunged.
Now, in those jurisdictions where allowed, we only ask about
criminal convictions after the applicant successfully completes a first
interview with the hiring manager(s).
When a contingent offer is made, HR runs background check via
third-party vendor (CRA)
If a felony conviction appears, HR contacts Legal to assist with
individualized assessment
o Another consideration: did applicant falsify application?
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Legal offers recommendations on how to
proceed
If company intends to rescind offer, applicant is
placed into FCRA process.
o Pre-adverse action notice
o Adverse action notice
HR does not typically share background results
with business/hiring managers
Allstate does not typically run background
checks on current employees
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Some industries are prohibited from hiring
individuals with certain felony convictions.
Example: Insurance industry
o Violent Crime Control and Law Enforcement Act of 1994
o “Any individual who has been convicted of any criminal
felony involving dishonesty or a breach of trust, or who has
been convicted of an offense under this section, and who
willfully engages in the business of insurance whose
activities affect interstate commerce or participates in such
business, shall be fined as provided in this title or
imprisoned not more than 5 years, or both.”
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Broad application
o “Business of insurance” = all acts necessary or
incidental to the writing of insurance
o No time limit
o Waiver exception
Potentially odd results
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A current employee is arrested
o The need for an independent investigation
The “moralist” client
o What to do when a decision-maker is influenced by
morality rather than the law
Outside licensing agencies
o Example: insurance regulators sometimes run more
thorough background checks and have more stringent
standards than employers
o Making licensing a condition of employment
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Written policies that follow the law
Training, training, and more training
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